11

Business Operations of the National Bank of Serbia in 2005 Business Operations of the National Bank of Serbia in 2005

and the Challenges to Come in 2006and the Challenges to Come in 2006

Radovan Jelašić Radovan Jelašić - - GovernorGovernor

2121 December December 2005 2005

22

1.581.57

1.59

1.451.361.41

0.911.03 0.950.86

0.980.81

0.0

0.5

1.0

1.5

2.0

2003 2004 03.05. 06.05. 09.05. 15.12.05.

ЕУР млрд.

In 2005 inflation soared beyond the expected level even though In 2005 inflation soared beyond the expected level even though both money supply both money supply (М1) (М1) and reserve money (M2) remained at the and reserve money (M2) remained at the level recorded in December 2003level recorded in December 2003*!*!

• Budget

• Energy sources

• Psychological factors

• Loans

* In euro terms

Money supply (М1) and reserve money (RМ)

М1

RМ

bn EUR

33

During 2005, the NBS undertook a number of unpopular measures During 2005, the NBS undertook a number of unpopular measures which had significant effects on the monetary policywhich had significant effects on the monetary policy

June

Меasures

• Dinar deposits (21%)*

• FX deposits (21%)**

Еffects (in CSD)

• Dinar deposits

• FX deposits

Net effects

20%

26%

0.1 bn

-7.4 bn

-7.3 bn

18%

Total

40.4 bn

38%***

* Reserve requirement rates on 10 January 2005

** With interest equaling 20% of the benchmark rate, up to June 2005

*** Including new FX savings, with interest equaling 100% of the benchmark rate up to 10 December 2005

-

-5,9 bn

-5.9 bn

August November December

20%

29%

-

-6 bn

-6 bn

18%

35%

1.7 bn

-22.9 bn

-21.2 bn

44

NBS also undertook additional measures via open market operationsNBS also undertook additional measures via open market operations

1.75

3.21

17.61

19.8018.43

11.35

17.67

15.77

13.9314.37

17.5917.43

0

5

10

15

20

25

31.12.2004 31.03.2005. 30.06.2005. 30.09.2005. 30.11.2005. 16.12.2005.

Стање продатих ХоВ у ЦСД млнд

0

5

10

15

20

25

Просечна пондерисана

стопа* (%)

* Average weighted rate on 14-day maturity securities

stock of sold securities

in billion CSDaverage weighted

rate (%)

55

30%29%26%23%24%

67%68%

70%72%70%

3%4%

5%6%

3%

0

50

100

150

200

250

300

350

400

450

31.12.2004. 31.03.2005. 30.06.2005. 30.09.2005. 30.11.2005.

ЦСД млрд.

2005 saw the continuation of lending growth2005 saw the continuation of lending growth

Total lending* Lending growth

270.1295.4 315.6

353.0401.2

Lending structure

Retail

Corporate

Other

*Banks excluded

295.4315.6

353.0

401.2

270.1

200

250

300

350

400

450

31.12.2004. 31.03.2005. 30.06.2005. 30.09.2005. 30.11.2005.

ЦСД млрд.

25.3

20.3

37.4

48.2

15

20

25

30

35

40

45

50

31.03.2005. 30.06.2005. 30.09.2005. 30.11.2005.

ЦСД млрд.bn CSDbn CSD

bn CSD

66

The speed of natural persons’ borrowing is much more disquieting The speed of natural persons’ borrowing is much more disquieting than its levelthan its level

• Average indebtedness per

employed citizen equals CSD

54,318 or as at this moment –

the equivalent of 3 average net

monthly salaries!

• In 2005 alone, indebtedness

increased more than in all the

years preceding 31 December

2004!

• Banks pass on the currency

risk to citizens with no

protection whatsoever.

28.4

64.3

119.5

0

20

40

60

80

100

120

140

2003 2004 Нов 2005

ЦСД млрд

3.01

6.276.71

7.81

9.56

11.17

0

2

4

6

8

10

12

2003 2004 Март 05 Јун 05 Сеп 05 Нов 2005

%

Stock of disbursed loans

Ratio of indebtedness per citizen to GDP per capita

bn CSD

77

• Level of issue: CSD 1 bn;

• Maturity: 26 December 2005 – 26 June 2006;

• Form: discounted security;

• Nominal value: CSD 5,000;

• Interest rate: up to 25% per year;

• Purchase: in the business units of Komercijalna banka

Savings Bills of the National Bank of Serbia – best investment Savings Bills of the National Bank of Serbia – best investment everever

88

15.0

5.1

7.8

4.6

6.0

12.6

0.5

5.0

86.0

85.8

86.386.386.386.3

86.186.186.0

85.9

85.785.8

85.9

85.0

0

2

4

6

8

10

12

14

16

30.9. 1.11. 1.12. 2.12. 5.12. 6.12. 7.12. 8.12. 9.12. 12.12. 13.12. 14.12. 15.12. 16.12.

ЕУР млн.

84.0

84.5

85.0

85.5

86.0

86.5

курс ЕУР/ЦСД

Exchange rate of the dinar was freely formed, whereas the present Exchange rate of the dinar was freely formed, whereas the present appreciation is attributable to the fact that supply is higher than appreciation is attributable to the fact that supply is higher than demanddemand

NBS sale of euros in December

12.6

5.0

0.5

mln EUR exchange rate EUR/CSD

99

The NBS share in foreign exchange trade has entered a gradual The NBS share in foreign exchange trade has entered a gradual declinedecline

Banks - banks

NBS – banks (IFEM)

* from 14 May 2002

** closing with 16 December

1.2

3.1

2.6

3.8

49%

31%

16%

56%

51%

69%

84%

44%

0.0

0.5

1.0

1.5

2.0

2.5

3.0

3.5

4.0

4.5

2002* 2003 2004 2005**

ЕУР млрд.Volume of foreign exchange trade 2002-2005bn EUR

1010

4.3 4.4 4.3 4.5 4.4 4.44.8 5.0 5.1 5.2 5.4

5.7

5.0 5.1 5.1 5.3 5.2 5.2 5.45.8 5.8 5.9 6.0

6.4

0.0

1.0

2.0

3.0

4.0

5.0

6.0

7.0

31/01 28/02 31/03 30/04 31/05 30/06 31/07 31/08 30/09 31/10 31/11 16/12

УСД млрд

3.3 3.3 3.3 3.5 3.5 3.63.9 4.1 4.2 4.3 4.5 4.73.8 3.9 3.9 4.1 4.2 4.3 4.5

4.7 4.8 4.9 5.15.3

0.0

1.0

2.0

3.0

4.0

5.0

6.0

31/01 28/02 31/03 30/04 31/05 30/06 31/07 31/08 30/09 31/10 31/11 16/12

ЕУР млрд

Foreign exchange reserves in both currencies experienced robust Foreign exchange reserves in both currencies experienced robust expansion in the course of 2005expansion in the course of 2005

*Increase of EUR 1.6 bn or 51.8% in the period 1 January – 16 December 2005

With commercial banks

НБС

НБС

+51.8% ЕУР 1.6 млрд*

• Foreign exchange reserves to money supply ratio equaling 304%!

• Foreign exchange reserves ~ 5-month imports!

With commercial banks

bn EUR

bn CSD

1111

2005 witnessed significant improvements in the financial sector2005 witnessed significant improvements in the financial sector

• Bank ownership transformation is nearly finished

– Banks with majority foreign capital account for 63% of the balance sum;

– As consolidation advances, the number of banks dwindles;

– Several private banks are in the final phase of sale.

• Insurance companies

– Increase in the total premium, as well as in the number of employees;

– Launching of the privatization process;

• Leasing

– Amended legislation, supervision of leasing companies assigned to the NBS competence;

• Voluntary pension funds

– Enactment of the new law on voluntary pension funds, supervision of VPFs falling within the NBS

competence.

1212

From From 11 February February 20062006 insurance policies will be issued in a new insurance policies will be issued in a new formatformat

1313

20052005 achievements we pride ourselves on achievements we pride ourselves on ... ...

• Implementation of the London Club Agreement – consensus of 99.95% of

creditors;

• Agreement with the IMF and Paris Club of Creditors;

• Securities – repo operations;

• Confidence in the banking system;

• New Law on Banks and Deposit Insurance Law;

• Bolstered autonomy of the National Bank of Serbia.

1414

Challenges in Challenges in 2006 2006

• Curbing the inflation;

• New arrangement with the IMF;

• Ownership transformation of insurance companies;

• Final rounding up of the financial sector supervision.

1515

Merry Christmas and Happy

New Year!